Pep Boys 2007 Annual Report Download - page 24

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Long-Term Incentives. We believe that compensation through equity grants directly aligns the interests of
management with that of its shareholders -- long-term growth in the price of Pep Boys stock. The Stock Incentive
Plans provide for the grant of stock options at exercise prices equal to the fair market value (the mean between and
the high and low quoted selling prices) of Pep Boys stock on the date of grant and the grant of RSUs. All of the
stock options granted in fiscal 2007 expire seven years from the date of grant and become exercisable in 20%
installments over four years beginning on the date of grant (except for Mr. Rachor’s inducement options which vest
in 25% increments over three years beginning on the date of grant). All of the RSUs granted in fiscal 2007 vest in
25% increments over four years beginning on the first anniversary of the date of grant (except for Mr. Rachor’s
inducement RSUs which vest in 25% increments over three years beginning on the date of grant). Dividend
equivalents are paid on RSUs.
The Human Resources Committee has established annual target grants for the named executive officers, which
are designed to be competitive at market median of our peer group. The annual grants are typically made at the
Board meeting immediately prior to our year-end earnings release. The annual target grants are also designed to
assist the named executive officers in achieving our established ownership guidelines, as described below. The
annual target grants for the named executive officers are as follows:
Title Target RSU Grant Target Option Grant
President & CEO $1,200,000 150,000
COO 18,000 6000
SVP 6000 2000
The Human Resources Committee weighted the split between RSUs and options more heavily towards RSUs as
is consistent with the prevailing corporate trend and in order to reduce our share overhang and the resulting dilution.
When making annual grants, the Human Resources Committee applies the performance values derived from the
named executive officers’ performance assessments (discussed above) to the target grants to determine the actual
grant level.
In fiscal 2007, each of Messrs. Cirelli, Yanowitz and Smith received equity grants reflective of their fiscal 2006
individual performance.
We have established stock ownership guidelines for our executive officers. Under our stock ownership
guidelines, it is recommended that each named executive officer incrementally acquire, over their first five years of
employment with Pep Boys, and then hold, at least two times their annual salary in Pep Boys stock. An officer may
satisfy the stock ownership guidelines through direct share ownership and/or by holding RSUs.
Retirement Plans. We maintain The Pep Boys Savings Plan, which is a broad-based 401(k) plan. Participants
make voluntary contributions to the savings plan, and we match 50% of the amounts contributed by participants
under the savings plan, up to 6% of salary. Due to low levels of participation in the savings plan, the plan
historically did not meet the non-discriminatory testing requirements under Internal Revenue Code regulations. As
a result, the savings plan was required to make annual refunds of contributions made by our “highly compensated
employees” (including the named executive officers) under the savings plan. Beginning in 2004, we limited our
officers’ contributions to the savings plan to ½% of their salary per year. In order to assist our officers with their
retirement savings, we adopted a non-qualified deferred compensation plan that allows participants to defer up to
20% of their annual salary and 100% of their annual bonus. In order to further encourage share ownership and
more directly align the interests of management with that of its shareholders, the first 20% of an officer’s bonus
deferred into Pep Boys Stock is matched by us on a one-for-one basis with Pep Boys Stock that vests over three
years.
In order to keep our executive compensation program competitive, we also have an Executive Supplemental
Retirement Plan, or SERP. The defined benefit portion of the SERP provides a retirement benefit based upon a
participant’s years of service and average compensation, which benefit (and our resulting obligation) is not fixed
until the participant’s retirement. To minimize the uncertainty of this financial obligation, in fiscal 2004,
participation in the defined benefit portion of the SERP was frozen for all unvested and new SERP participants. All
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